Can Social Security Be Delayed Using the Reverse Mortgage?

Case Study by Tom Davison, PhD, CFP®

The Power of a Monthly Payment

Once a HECM reverse mortgage is initiated and the initial line of credit amount is determined, the clients may choose the tenure or term payment option. In the chart below, you will see an illustration of the initial line of credit and monthly tenure payment amounts based on three different home values. However, the real power of this tool is that your client can choose to allow the line of credit to grow and at any point in the future, they may convert their existing line of credit into higher monthly tenure payments.

What if your clients do not want or need a monthly payment for an indefinite amount of time? What if they only need income for a 3, 5 or 8-year period of time? This is where the HECM Term payment may make sense.

Imagine this: the clients’ retirement plans call for them to defer Social Security until age 70, but something has happened, and they need income now. Converting the HECM Line of Credit into a monthly payment to cover the gap from their current age until their optimized Social Security withdrawal age could work well.

In fact, Dr. Tom Davison of Summit Financial found this strategy can dramatically improve a retirement income plan. Below, I’ve included his findings in the forms of a case study in which the reverse mortgage increased the retirement plan success rate from 12% to 89%. (Article reprinted by permission of the author.)

To see the the complete 8-page study Click HERE

Case Study

As baby boomers are hitting their 60’s the press is flooding us with articles about delaying Social  Security. But many people claim as soon as they can, and less than 10% wait past age 66. One reason  may be that articles describe the long-term advantage gained by delaying Social Security but often don’t help people find money to live on during the income gap that’s created from age 62 to 70.

This case study was designed to show that a HECM can successfully fund the income gap. It shows a dramatic improvement to the client’s plan. While cases could be engineered to show an even larger improvement, many client situations will show a smaller advantage from using the HECM to fund the income gap. A later section describes the factors that drive the HECM’s impact to provide planners insight to help identify situations where it might work well or not so well.

A client is nearly 62 and wants to know if she should delay her Social Security or start now. She will start will start her pension at age 62, and her investment portfolio is in an IRA. She has full equity in her home, and is eligible for a $200,000 HECM Line of Credit to tap her housing wealth.

Meet Our Client

If she starts Social Security at 62 her benefit is $1,875/month. With her pension she is $1,125/month short of her $8,000 spending goal. And she needs to pay state and Federal income taxes on her pension and IRA withdrawal.

This plan does not work! The next picture shows the linear projection of her plan with fixed investment results. Her long-term Monte Carlo simulation predicts she will run out of money in 88% of her projected lifetimes – in only 12% of the times did the investment portfolio had enough great returns to carry her through. On average her IRA grows slowly for several years, but then is rapidly depleted.


A revised plan produces a sound plan. She delays her Social Security to age 70 and uses the HECM line of credit to fund spending starting at age 62. That lasts until she is 68. Then her IRA is tapped for two years, until she is 70 and her Required Minimum Distributions and Social Security start. If more money is needed for spending and taxes it comes from the IRA.

This plan works very well! The IRA starts to grow again, and the graph’s linear projection with fixed investment returns shows her dying with nearly a million dollars. The Monte Carlo results, the more useful predictor lifetime outcomes, show an 89% success rate. She died with at least a dollar in 89% of the cases, considered a successful result. She’s projected to need to adjust spending in only 11% of the projected lifetimes.

Synergy Among Reverse Mortgages, IRAs and Social Security Delays

In addition to the two scenarios on the graph above, three other scenarios were analyzed. Two were added to the table below.

  • Perhaps not using the reverse mortgage and only delaying Social Security to age 70 is enough for this client, as she expects to live a long time.   Result: 8% Success Rate. The IRA is depleted so much in the first 8 years it is completely exhausted 92% of the simulated lifetimes.
  • Perhaps starting Social Security at 62, but including the HECM LOC to supplement income would work better? The success rate was 70%. That might be enough for some clients, but certainly is not a robust approach. And it gives up the longevity protection delaying SS provides: she receives the maximum amount of guaranteed and inflation adjusted income into her oldest years, and is income she can’t outlive.
  •  The last scenario, which is not on the following table, adjusts a different variable: the rate of return on the HECM LOC. The previous scenarios assumed the LOC grew at 4% annual compounding. The remaining scenario also delayed the Social Security start to 70 and funded early spending from the HECM LOC, but bumped the LOC’s compounding rate to 8% from 4%The faster LOC growth makes more money available, funding more of the early spending. The result was to boost the Monte Carlo success rate from 89% to 99%!


How and Why Did the Reverse Mortgage Strategy Work So Well?

The scenario was designed to show the advantage of the Reverse Mortgage (RM).

Factors that together made using the RM LOC more to this client’s advantage than in many client situations:

Her RM LOC and SS benefit are both larger than many. 

Her tax rate is high, producing a large tax bite on IRA withdrawals. And the IRA is her only investment vehicle – she does not have a Roth or ordinary taxable investments. She has a fairly large pension that makes up a good part of her spending level, but still leaves significant requirement to fund spending from sources beyond the pension.


To view the rest of the 8-page study and a few more examples, click HERE

 Tom Davison
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Don Graves, RICP® is a Retirement Income Certified Professional and one of the Nation’s Leading Educators on the Emerging Role of Reverse Mortgages in Retirement Income Planning. He is president and founder of the HECM Institute for Housing Wealth Studies and an adjunct professor of Retirement Income at The American College of Financial Services. He has helped tens of thousands of Advisors as well as more than 3,000 personal clients since the year 2000
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®
Don Graves, RICP®, CLTC®, Certified Senior Advisor, CSA®

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